It’s a scenario most often experienced by those who are in the midst of relocating — should I sell my house or rent it? There are multiple factors that come into play here, and before you decide on anything, here are five questions you should ask yourself first:
How much equity do I have?
The amount of equity holds some major bearings on which path you should choose right from the get-go. For instance, if you have little to no equity (only a few thousand dollars or less), renting can help you build more equity until you have enough money to cover selling costs (more on that below). Selling your home when you have only a very small amount of equity depends on your available cash to bring to settlement. No cash typically means a short sale or foreclosure, which may or may not be a viable option depending on your situation.
Additionally, you should take into consideration the rate at which your home is building equity. If your home is appreciating quickly, it might be better to hold on to that property for as long as the trend continues, if you can continue to cover the costs of owning while renting.
Is it a seller’s market or a buyer’s market?
Obviously, if you’re living in a seller’s market, then selling your home might be the better option because you’ll be more likely to get the most for your home, whereas selling in a buyer’s market typically means settling for less. But that’s not the only thing you need to take into consideration. You have to keep in mind that:
- You’re focusing on local trends, not statewide or nationwide trends, and
- Your ability to sell your home for a profit depends on individual home values in your immediate area.
It’s never a bad idea to contact a local realtor to discuss market trends and run some comps (comparables) to determine what the average value of homes in your neighborhood are going for. They’ll be able to provide you with an accurate depiction of what the local market is doing presently, what it’s done in the past, and what it’s most likely to do in the future, carving out a much clearer picture of how your house will do on the market. If it happens to be that you’re in a buyer’s market and might have a hard time selling (or already know you will through experience), renting can be a logical solution to help cover any remaining mortgage payments or save up for selling costs again while you’re stuck in limbo.
Is the rental market in good health?
Rent is also subject to market trends. If you’re asking for more than most are willing to pay, you’ll be hard pressed to find tenants, which will become one of your number one priorities if you decide to rent your home. So, if rent values for properties similar to your home are too low to cover your mortgage payments, then renting may not be the best choice, unless you’re willing to make up the difference. You also have to pay attention to demand. How long does it take similar properties to find qualified renters? Are rental properties quickly snatched up? Or do they linger? Are you confident in your ability to cover costs if rent doesn’t get paid or if tenants have to leave unexpectedly?
Which costs can I afford?
There are costs associated with both selling and renting your home. The big question is, which costs are most affordable for you? There are, as we mentioned before, selling costs that you need to consider: real estate commissions for your selling agent, any home warranty or bonus offers made in conjunction with the sale of the house, transfer taxes, cost of repairs required by inspections, title search fees, capital gain tax and more.
On the flip side, managing a rental property will require money for any repairs or maintenance or, if you decide to use a property management association to take care of all of the maintenance and billing for you, money for fees and services. Money received in rent is usually considered additional income as well, which means additional taxes. There are tax deductions for rental income. For instance, certain repairs, operating expenses, property depreciation or property taxes may be deductible, but it’s best to discuss which deductions you’ll actually be eligible for with an accountant, rather than hoping the deductions will be worth the increased taxes.
Do I want to be a landlord?
Finally, you need to ask yourself if you really and truly can handle being a landlord, as this comes with a whole host of responsibilities that require money and time. First, you need to find tenants that are trustworthy and likely to pay their rent on time, which may require background checks, credit checks and other verification. Even with these measures, tenants may still be late with rent or miss payments altogether. As the landlord, however, you’ll be responsible to pick up the pieces, wherever they may fall, so if your property is damaged, it’s up to you to fix it. If your tenant turns out to be unreliable, it’s up to you to find another. If you’re doing this on your own, this is a serious investment in time. If you’re working with a property management group, you’ll still have to be available for any issues that may arise with your property, as most management groups require the landlord’s permission in many incidents.
Asking yourself these questions can help prepare you for either option you choose. However, if you still need some help, contact us at firstname.lastname@example.org, or give us a call at 1-800-533-1840. Whether you need help selling your home or managing your soon-to-be rental property, we’re here to lend a hand.